Netflix is poised to experience significant growth in its ad-tier membership during its fiscal third quarter, despite an overall slowdown in customer additions, as indicated by Wedbush Securities. The brokerage has raised its price target on the stock to $775 from $725, reiterating an outperform rating for the streaming giant. Wedbush’s analysts have revised their earnings per share estimates for the third quarter, predicting a figure of $5.16, which surpasses the consensus estimate of $5.11 and aligns closely with management's guidance of $5.10.
This optimistic earnings outlook comes amid a raised revenue forecast, now set at $9.76 billion, slightly above the previous estimate of $9.75 billion. However, it remains just below the consensus forecast of $9.77 billion and Netflix's own guidance of $9.73 billion. The company is set to release its earnings results for this quarter on Thursday. According to Wedbush’s quarterly survey, ad-tier membership continues to grow, even as overall subscriber numbers are anticipated to slow down.
The brokerage has adjusted its projections for net subscriber additions in the U.S. and Canada, reducing it to 1 million from an earlier estimate of 1.5 million. While the survey results may not have been astonishing, the Wedbush analysts, including Alicia Reese and Michael Pachter, noted that they were still encouraging and indicative of growth.
Additionally, the brokerage has increased its average revenue per user estimates for both the U.S. and Canada, as well as for Europe, the Middle East, and Africa. They remarked that a previously expected increase in cost-per-thousand-impressions did not materialize during this quarter. Investor expectations are ramping up as the year-end approaches, spurred by the potential advertising revenue from forthcoming live events, including those involving the National Football League and WWE, according to Wedbush. Wedbush analysts expressed confidence that Netflix is strategically positioned to enhance its ad-tier revenue contributions as the year closes and into 2025.
They highlighted that improved advertising solutions, targeted campaigns, new partnerships, and an expanded lineup of live events will bolster growth. With this scenario, the ad-tier segment is projected to become the primary growth engine by 2026..